Fuel Dealers, Retailers Push Back on New UPI Merchant Fee
Trade associations representing fuel stations, retailers, and clothing manufacturers are opposing a new UPI Merchant Discount Rate set to take effect
A new fee framework for UPI payments is facing significant pushback from merchant groups, who warn it could undermine digital payment adoption. Union Finance Minister Nirmala Sitharaman clarified on Monday that the Merchant Discount Rate (MDR) is a charge levied by service providers to strengthen UPI infrastructure and will not be passed on to consumers.
The framework, effective October 15, introduces fees on certain UPI transactions. The structure varies by sector.
| Transaction Type | MDR Rate | Cap/Notes |
|---|---|---|
| P2M UPI over Rs 2,000 (Essential/Thin-margin sectors like fuel) | Flat Rs 5 | Per transaction |
| Capital market transactions (mutual funds, securities, stockbrokers) | 0.02% | Capped at Rs 300 |
| Specified UPI transactions over Rs 2,000 (Standard rate) | 0.4% | Not specified in source |
Petrol Dealers Threaten UPI Boycott
The Madhya Pradesh Petroleum Dealers Association has stated its members will not accept UPI payments above Rs 2,000 starting October 16. Association President Ajay Singh said fuel pump operators work on profit margins of around 0.5% and cannot absorb the new cost. He estimated the flat Rs 5 fee would lead to a loss of approximately Rs 17,700 per pump per month. Singh noted that debit and credit card payments, which are exempt from MDR, would remain available without limit.
Retailers Warn of Cash Comeback
The Retailers Association of India (RAI) argued the 0.4% MDR on transactions above Rs 2,000 creates a strong incentive for small merchants to shift back to cash, especially during the festive season. CEO Kumar Rajagopalan warned this move could hurt the government's formalisation agenda, as transactions moving off UPI would not feed into GST reporting. "This cuts against the government’s own formalisation agenda. UPI acceptance should be incentivised, not taxed," Rajagopalan was quoted as saying. The RAI also contested the logic of the fee, arguing most UPI payments function as digital debit transactions without the costs associated with credit networks.
Industry Calls Timing Challenging
The Clothing Manufacturers Association of India (CMAI) said the introduction of UPI MDR at the start of the festive season comes at a challenging time for the industry. President Santosh Katariya said adding another cost risks straining an ecosystem that is still finding its footing. He described UPI as a powerful enabler of consumption and formalisation.
Traders Signal Payment Disruptions
According to an NDTV report, traders in Ghaziabad have begun putting up notices stating "UPI Payment Will Not Be Accepted." Shopkeepers are warning customers that UPI may not be available for higher-value purchases once the new rule takes effect, fearing the cost could eventually be passed on to buyers.
Potential for Bill-Splitting Loophole
A report by ET highlights a potential method to avoid the charges. Merchants may split a single large bill into multiple transactions of Rs 2,000 or less to circumvent the MDR. For example, a Rs 6,000 payment could be processed as three separate Rs 2,000 transactions. An app called 'one999' has reportedly been created to facilitate this splitting. The National Payments Corporation of India's FAQs do not mandate that separate payments for a single bill must be combined.
